A number of Kenyan manufacturers are making plans to move their operations to neighboring countries, driven by rising business costs as a result of high taxes and the impact of the falling shilling.
At least three bodies representing Kenyan companies in the private sector have raised concerns about the impending exit, warning that it will lead to job losses. They called on the government to slow down on taxes, fees and other factors that put off investors.
Three manufacturers in the steel, cement and paper industries have reportedly moved some of their critical operations that will see them produce from those countries and export the finished products to Kenya, as the new strategy most companies have brought to the table this year.
The Kenya Association of Manufacturers (KAM) says more companies have strategized to shift their core operations outside Kenya this year with plans to lay off staff or replace permanent workers with contract workers. Manufacturers, who employed more than 350,000 Kenyans by 2022, complain that more taxes and duties imposed by the government have made it possible to operate from neighboring countries and access the Kenyan market from abroad.
“Some manufacturers are also considering relocation as a strategic move for 2024. The possibility of relocating operations to other countries, within the region, is seen as a proactive measure to overcome potential obstacles and maintain business operations,” KAM said.
The association says government policies adopted last year, including increased taxes on fuel and taxes on raw materials, have led to dwindling business operations in the manufacturing sector, affecting productivity and employment. Anthony Mwangi, CEO of KAM, said that among the industries most affected by the policies were steel, cement and paper, which were affected by the imposition of the export and investment promotion tax. The tax, introduced in the Finance Act 2023, taxes companies importing clinker, steel and iron at a rate of 17.5 percent, while those importing paper pay a tax of 10 percent.
“Most manufacturers in the affected industries are now choosing to reduce operations here (in Kenya) and mainly move core production to neighboring countries because even from there they will still have access to the Kenyan market,” Mwangi said.
While the association notes that the move will lead to job losses as companies close operations in Kenya, it said it will continue to push for better terms.
Separately, the Kenya Private Sector Alliance (Kepsa) and the Central Organization of Trade Unions (Cotu) also raised concerns, blaming tax measures implemented since last year and global economic developments for stimulating corporate exits, as investors look to lower-income countries. Less predictable systems.
“The few investors in our manufacturing sector are already moving because of the problems we are facing. How will we employ our young men and women? Some investors are already moving to Tanzania, Uganda and other neighboring countries where they can be heard. “We must address that”.
Secretary-General Kuto urged the government to consider tax breaks to attract and retain investors, with most of them moving out of Kenya due to the high cost of doing business. Kipsa told the nation that fiscal policies had led to a loss of Kenya’s competitiveness in the region, increasing the possibility of capital flight.
The body representing businesses in the private sector also noted that the maximum pool of companies obliged to pay sales tax has increased from those earning Sh50 million to those earning Sh25 million a year, leaving those earning more than Sh25 million effectively obligated. The payment of corporate tax at a rate of 30 percent also stimulated the transfer of some companies.
“The high cost of doing business in Kenya and low competitiveness in the East African region create a risk of capital flight to neighboring countries, which is likely to negatively impact even existing jobs in the formal sector,” said Carol Kariuki, CEO of KEPSA.
KAM said a survey it conducted this month showed that only 20 percent of manufacturers are optimistic that their companies’ performance will improve this year, 40 percent expect the situation to remain the same, and another 40 percent see the state of affairs. To get worse.
“In addition, due to escalating labor costs, manufacturers are evaluating their workforce strategies for the coming year. The issue of laying off permanent employees and hiring temporary workers to manage costs and facilitate recovery of investments is being considered,” KAM said.
The association said that this step would be for companies to “achieve a balance between maintaining operational efficiency and addressing financial constraints associated with labor expenses.”
The latest data from the Kenya National Bureau of Statistics showed that the manufacturing sector grew by 2.7 percent in 2022, down from 7.3 percent growth in 2021, affected by weak agricultural productivity.